Do you know that student loan debt in the United States has surpassed a staggering $1.7 trillion?
As pursuing higher education becomes increasingly expensive, families and students seek effective financial solutions. Enter the PLUS loan—a powerful ally in student financing!
This blog post will unravel the mysteries surrounding PLUS Loans, exploring their types, benefits, and the indispensable role they play in making educational dreams a reality.
Whether you’re a parent supporting your child’s academic journey or a graduate student desiring to advance your career, this guide is for you!
What is a PLUS loan?
A PLUS loan, which stands for Parent Loan for Undergraduate Students, is a federal loan to assist parents and graduate students in covering higher education costs. This loan falls under the umbrella of the William D. Ford Federal Direct Loan Program, offering a direct loan from the U.S. Department of Education. A PLUS loan can cover the remaining education costs after other financial aid, such as grants and scholarships, has been applied.
Types of a PLUS loan
Parent PLUS loan
The parent PLUS loan is specifically designed to assist parents in funding their dependent undergraduate child’s education. Its primary purpose is to provide a financial bridge to cover educational costs you couldn’t meet through other financial aid sources.
To be eligible for this loan, parents must meet the following criteria:
- Be a biological or adoptive parent (or a stepparent, in some cases) of a dependent undergraduate student
- The student must be enrolled at least half-time in an eligible education program at an accredited institution
- The borrower must be a U.S. citizen or an eligible non-citizen
- The borrower must not have an adverse credit history, as determined by a credit check
Graduate PLUS loan
This federal loan program is specifically tailored to meet the financial needs of graduate and professional students pursuing advanced degrees. It is a valuable resource to cover higher education costs beyond the undergraduate level.
To be eligible for this loan, graduate or professional students must meet the following criteria:
- Be enrolled at least half-time in an eligible graduate or professional education program at an accredited institution
- Be a U.S. citizen or an eligible non-citizen
- Have finished the Free Application for Federal Student Aid (FAFSA)
- Pass a credit check, which assesses the borrower’s credit history
Costs of a PLUS loan
A PLUS loan maintains a fixed interest rate, meaning once the loan is disbursed, the interest rate doesn’t change throughout its duration unless you consolidate or refinance your loans. For instance, loans issued between July 1, 2023, and July 1, 2024, bear an 8.05% interest rate.
In addition to interest, borrowers are responsible for loan fees. For both the graduate and parent versions, a 4.228% loan fee is applicable if the loan is disbursed between October 1, 2020, and October 1, 2023.
Pros & Cons of PLUS Loans
Pros
- Flexible repayment options: PLUS loans offer various repayment plans, including Standard, Graduated, Extended, and Income-Driven Repayment plans, allowing borrowers to choose a plan that aligns with their financial situation.
- No collateral requirement: Unlike some private loans, PLUS loans do not require collateral—borrowers can access funds without putting their assets at risk, providing a safer borrowing option.
- Federal loan benefits: Borrowers of PLUS loans enjoy federal loan benefits (e.g., deferment and forbearance options), allowing temporary relief from making payments during challenging financial periods.
- Coverage of educational expenses: PLUS loans cover your tuition fees and other education-related expenses like room and board, books, and transportation. This comprehensive coverage ensures various aspects of the student’s education are funded.
- Loan forgiveness programs: While not as extensive as forgiveness programs for other federal student loans, income-driven forgiveness options are available for PLUS loans. These programs typically require substantial monthly payments over an extended period before forgiveness is granted.
Cons
- Credit check requirement: Both parent and graduate PLUS loans require a credit check. While the criteria are less strict than those for private loans, having an adverse credit history could result in a denial, and borrowers may need to appeal the decision or secure an endorser.
- Higher interest rates: The fixed interest rates on PLUS loans are generally higher than rates for other federal student loans. While the stability of a fixed rate is an advantage, the higher initial rate may result in increased overall repayment amounts.
- Potential for debt accumulation: Without careful consideration, PLUS loans can lead to significant debt, impacting the financial well-being of borrowers post-graduation. Gauge your capability to fulfill the loan and look into more budget-friendly alternatives when possible.
How To Apply for a PLUS Loan
Applying for a PLUS loan involves a step-by-step process, and following each step is crucial to ensure a smooth application.
1. Submit the Federal Student Aid (FAFSA) application form
Whether you’re a parent applying for a parent PLUS loan or a graduate student applying for a graduate PLUS loan, the FAFSA is the key to accessing federal student aid, including PLUS loans.
- Purpose: The FAFSA gathers information about your family’s financial situation, helping determine your eligibility for federal student aid.
- Process: Complete the FAFSA online, providing accurate and updated information about your income, assets, and other relevant financial details.
- Timing: It’s essential to submit the FAFSA as early as possible, as some programs have limited funds and work on a first-come, first-served basis.
2. Submit a direct PLUS loan application
Once the FAFSA is submitted, the next step is to apply for a PLUS loan directly, involving a separate application process, and it’s done on the Federal Student Aid (FSA) website.
- Access the FSA website: Go and log in using your FSA ID. You can create one on the same website if you don’t have an FSA ID.
- Select the appropriate loan application: Choose the correct PLUS application based on your status—either parent or graduate PLUS loan.
- Complete the application: Fill out the required information, including the loan amount you wish to borrow. Remember that the loan amount cannot exceed the attendance cost minus other financial aid received.
- Undergo a credit check: A credit check is essential to the application process.
3. Complete a Master Promissory Note (MPN)
Once approved for a PLUS loan, you’ll need to sign an MPN—this legal document outlines the terms & conditions of the loan and works as your agreement to repay the borrowed amount.
The MPN will require you to provide personal and financial information, including references and your Social Security number. You can also complete the MPN on the Federal Student Aid website; it’s a one-time process for each loan type. You should carefully read through the terms of the MPN, ensuring you understand the obligations and responsibilities associated with the loan.
4. Receive loan disbursement
Once the loan is approved and all necessary documentation is completed, the funds will be disbursed directly to the school. The school will use the loan funds to cover the specified educational expenses, including tuition, room and board, books, and other related costs.
What should you do to ensure a successful application? These tips can help you a lot!
- Stay informed: Keep track of deadlines for submitting the FAFSA and the PLUS loan application. Remember that you must meet deadlines to ensure your eligibility for certain types of aid.
- Check your credit report: Review your credit report before applying—correct any inaccuracies to avoid potential issues during the credit check.
- Consider loan amounts carefully: Only borrow what you need. Assess your financial situation and only request the necessary funds to cover educational expenses.
- Explore alternative options: Before committing to a PLUS loan, explore other federal student aid options, scholarships, and grants.
The PLUS loan is a key solution for financing higher education, offering flexibility and federal benefits for parents and graduate students. With its crucial role in bridging financial gaps, the PLUS loan empowers families and individuals to navigate educational costs and realize their academic aspirations.